Penalty for Incorrectly Claiming a Dependent

My husband and I filed taxes jointly and included his daughter as a dependent, although she did not live with us more than 51% of the year. His mother tried to file taxes claiming the granddaughter and it was rejected saying someone else already claimed her. She said she was going to the IRS office to show proof that she had the right to claim her granddaughter. She told my husband she is going to "press charges" against whoever falsely claimed his daughter. He told her no, don't do that, we claimed her. So now she is saying "its out of my hands" and that she was going to tell the IRS that we fraudulently claimed his child. What is the worst that can happen? We agreed to give her 1/2 of our return. Although she has not been to the IRS and I know they cannot tell her who or when her granddaughter was filed as a dependent, she continues to threaten that we will go to prison over this. My understanding is that if she goes to the IRS, they will do an audit and we will have to repay the taxes and possibly face a fine. Not "go to prison" over approximately $1,200 we received extra from claiming the child. I am at my wits end over the crazy mother in law saying we are going to prison. Can someone please advise?

Re: Penalty for Incorrectly Claiming a Dependent

Thank you, that's what I thought. I believe she is trying to call our bluff. She is actually falsely claiming the grandchild. She and her husband OWE the IRS over $20k and so she has her adult daughter file the taxes using the little girl as dependent. So they are mad that we beat them to the punch, is my opinion. Thanks again!

Re: Penalty for Incorrectly Claiming a Dependent

She can't e-file with the dependent someone else has claimed. She can file on paper. As soon as the IRS catches two people with the same dependent claim (or a dependent claimed who has their own return), they will send all parities a letter and a 1040X offering to let them fix their return if they were at fault. Otherwise, if nobody does, they will do what superdream says.

Re: Penalty for Incorrectly Claiming a Dependent

Flyingron, do you mean that they will audit and then we'll just have to amend and then repay? That's what I have gathered from my research. If the IRS sent everyone to prison who made a $1,000 mistake, then they'd have to spend all their time on legal issues rather than taxation!

Re: Penalty for Incorrectly Claiming a Dependent

There are at least a million returns a year claiming an improper dependent. Maybe more. The rules are so complicated that it's a wonder anyone actually gets it right. Don't lose any sleep. And don't let anyone intimidate you with such nonsense.

Re: Penalty for Incorrectly Claiming a Dependent

Quoting Bubba Jimmy

There are at least a million returns a year claiming an improper dependent. Maybe more. The rules are so complicated that it's a wonder anyone actually gets it right. Don't lose any sleep. And don't let anyone intimidate you with such nonsense.

I absolutely agree with this. However, if you know that you really should not have claimed the child, if the child is living with grandma and being supported by grandma, then you really should amend your return to remove the child. If you do so before April 15th, and immediately pay back any excess refund that you received, then there will be no interest or penalties.

Re: Penalty for Incorrectly Claiming a Dependent

They won't audit. You'll get a computerized form letter giving them time to fix it themselves. If they don't, then they'll get a second computerized letter denying the exemption and assessing them the additional tax (and interest and penalty). Nobody is going to jail and the only effort the IRS has spent is a few computer cycles.

Re: Penalty for Incorrectly Claiming a Dependent

Quoting flyingron

They won't audit. You'll get a computerized form letter giving them time to fix it themselves. If they don't, then they'll get a second computerized letter denying the exemption and assessing them the additional tax (and interest and penalty). Nobody is going to jail and the only effort the IRS has spent is a few computer cycles.

That's not quite right.

The first letter does not require a response if the party was the correct party to claim the child.

The second letter only comes if neither party amends their return and is a letter requiring them to provide proof that they were entitled to claim the child.

The third letter is a denial if no proof is provided or the IRS feels that the proof is inadequate.

The IRS is also doing quite a few mini audits of returns with children claimed. I have seen intact families get the mini audit letters, let alone others.

Re: Penalty for Incorrectly Claiming a Dependent

Thanks everyone. You are telling me what I was finding in my informal research. My husband, his mom, his daughter's mom, the great grandma, etc. all seem to shuffle this kid around and then every year someone different files the taxes. When he told me go ahead and do it, I did. Then grandma had a hissy fit. I am smart enough to know if they audit and find someone else the proper person to claim the child, then I amend my return and do what they ask. I have goofed up taxes in the past and promptly complied and that was end-of-story.

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